Social tokens are tokens issued by individual creators or communities that enable community members to collaborate and share ownership in the value created together. Social tokens can be earned as rewards for contributing to the group and can be used for purposes such as granting access to a chat group or voting on community decisions. “Social token” is a broad term that encompasses personal tokens (formed around an individual), community tokens (formed around a community), and creator tokens (formed around a creator).
Sometimes social tokens are associated with non-fungible tokens (NFTs), which exploded in popularity in 2021. NFTs are unique assets that are represented as a token such as a digital art piece or a plot of virtual land. While NFTs are “non-fungible” meaning that each item is unique, social tokens are “fungible” meaning that each individual token can be exchanged for another of the same token. For example, a $1 bill is fungible as it is easily tradable for another $1 bill. Strong communities can form around both NFTs and social tokens. For example, with the NFT collectibles CryptoPunks, Bored Ape Yacht Club, and Stoner Cats, each project has members that own the individual NFTs but are also part of the wider community. And a single community can make use of both social tokens and NFTs such as using social tokens to make governance decisions and NFTs to reward contributors.
Social tokens are also often associated with decentralized autonomous organizations (DAOs), which are groups organized around a mission that coordinate through a shared set of rules enforced on a blockchain. Social tokens can be used for governance over a DAO, but they do not have to be. There can be cases where a social token is only used for non-governance purposes like rewarding supporters with early access to merchandise or exclusive opportunities.
A decentralized autonomous organization (DAO) is a group organized around a mission that coordinates through a shared set of rules enforced on a blockchain.
One of the main benefits of a DAO is that they are more transparent than traditional companies since all actions and funding in the DAO are viewable by anyone. This significantly reduces the risk of corruption and censorship. Publicly traded companies must provide independently audited financial statements, but shareholders only get to see the financial health of the organization at a snapshot in time. Since a DAO's balance sheet exists on a public blockchain, it is completely transparent at all times, down to every single transaction.
DAOs typically are more globally accessible and have lower barriers to entry than companies. Given the transparency and lower barriers to entry, there will likely be lower switching costs for DAO members who don’t agree with the rules and actions. DAOs sharing a similar mission might need to compete for members and are incentivized to be as transparent as possible and not extract too much rent from the group so that they are able to attract top members. DAOs might also need to quickly evolve to meet the members' needs.
Non-fungible token (NFT) is a term used to describe a unique digital asset whose ownership is tracked on a blockchain, such as Ethereum. Assets that can be represented as NFTs range from digital goods, such as items that exist within virtual worlds, to claims on physical assets such as clothing items or real estate. In the coming years, we will see NFTs used to unlock entirely new use cases that are only made possible by crypto.
While the Ethereum ecosystem is where most NFT activity has taken place to date, NFTs can exist on other smart contract platforms too. This is because, at their core, NFTs are just digital abstractions used to represent assets that are one of a kind. Non-fungible token isn’t the most intuitive term since we don’t commonly refer to the fungibility of objects in the physical world, but this is an important technical distinction when it comes to how an asset is represented on a blockchain. The goal for this post is not to detail every project within the NFT space, but to give a high level overview of what NFTs are, why they are interesting, and showcase some of their potential use cases.